Banks for tax exemption on interest income

To increase the deposit base, the banking industry is likely to press for restoration of tax exemption on interest income, increase in ceiling for tax deduction at source and relaxation in the lock-in period for savings under Section 80 C, in the forthcoming Budget.

In addition, the bankers feel that the passage of pending amendments to the Banking Regulations Act would be a positive development for the industry in the days to come.

With mobilisation of deposits becoming a problem due to availability of other investment avenues that provide higher returns, banks are seeking restoration of the earlier provision for tax exemption on interest income of up to Rs 15,000 per annum.

"The earlier provision of tax exemption on interest income should be restored," a senior executive of a public sector bank told Business Standard.

Similarly, under the present rules, banks are required to deduct tax at source in case interest income is more than Rs 5,000 per annum. "This interest income limit for TDS should be raised at least to over Rs 10,000 per annum," the official said.

Bankers want relaxation in the mandatory five-year lock-in-period to get tax benefit under Section 80 C for fixed deposits up to Rs 1 lakh, to make it attractive for investors.

"The lock-in period should be reduced to three years," another banker said, adding this would make investors comfortable from the liquidity point, and attract more savers under the scheme.

In a pre-Budget presentation to the finance ministry, industry body CII has also asked the government to encourage personal savings by doubling the limit under Section 80 C from Rs 1 lakh to Rs 2 lakh to make adequate funds available for the infrastructure sector.

Bankers hope the pending amendments to the banking regulation laws to make voting rights of foreign investors proportionate to their holdings would be taken up in the Budget session of Parliament.

"Reforms should move forward. Nothing much is happening on consolidation also, I hope there will be meaningful debate," a public sector bank chief said.

Besides changes to the banking regulation laws, he said, if the proposed amendments to insurance laws including raising FDI from 26 per cent to 49 per cent move forward, it would be a positive signal to investors. About 15 banks are in the process of entering the insurance sector in joint ventures.